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Barrons: It’s the First Day of Fall — In More Ways than One

Submitted by IWB, on September 22nd, 2010

HAPPY GANN DAY! It doesn’t appear on any calendar, but Sept. 22 is known among aficionados of various and arcane market indicators as the day pinpointed by the late technical analyst, W. D. Gann, when markets are more likely to reverse than any other day of the year.

For some reason, stocks, commodities and currencies have a curious tendency to make major tops or bottoms on this day, as Paul Macrae Montgomery points out in a special study edition of Universal Economics newsletter entitled, “A Date Which Will Live in Infamy.” While it is a bit of hyperbole to equate Sept. 22 with FDR’s characterization of the Dec. 7, 1941 attack on Pearl Harbor, the number of huge reversals that took place on or about that date is stunning.

Montgomery recalls living through the October “massacres” of 1978 and 1979, the crash of 1987, the mini-crash of 1989, the 1997 Asian collapse and the Long-Term Capital Markets plunges, which started to cascade downward in late September. And while gold bullion topped in January 1980, gold stocks made their highs on Sept. 22 of that year, he adds. That date also saw the peak in many oil stocks.

Looking back farther, on Sept. 22, 1929, the Dow Jones Utility Index became the final major average to make its high before the Great Crash. And in 1873, a panic forced the New York Stock Exchange to shut down, Montgomery further details.

And who can forget 2008, when markets went into freefall in the days following the collapse of Lehman Brothers? What’s remembered less well now is the market chaos in the subsequent days after the House of Representatives initially rejected legislation that created the Troubled Asset Relief Program.

Currencies have seen historic changes around this date as well, he adds. The British pound was taken off the gold standard and was devalued a huge 28% on Sept. 21, 1931. Exactly 54 years later, the Group of Five produced the Plaza Accord, which brought a sharp decline in the dollar and expansion of global liquidity. Black Wednesday, when Britain was forced to withdraw from the European Exchange Rate Mechanism, came a few days early on Sept. 16, 1992.

I also recollect that Treasury note and bond yields made their historic highs in late September, 1981, with shorter maturities hitting 17% and long bonds reaching 15%. That marked the end of a 35-year bear bond market from the end of World War II.

Why the apparent coincidence of these market upheavals beginning around Sept. 22? Montgomery posits a possible link to the Autumnal Equinox, which takes place Tuesday afternoon in the Northern Hemisphere. And he also observes an increasing incidence of market reversals around the time of Vernal Equinox in the Spring.

This year’s Autumnal Equinox comes after a historic six-month rally in stocks and a persistent, if much less dramatic, drop in the dollar, he says. Traders should be alert for reversals in stocks, currencies and gold for possible reversals, Montgomery advises. Long-term position accounts shouldn’t act without corroboration from other models, he adds.